If you haven’t heard about Bitcoin by now you’ve been living under a rock on a planet orbiting a distant star. You probably shouldn’t even be here reading this article.
Just kidding.
All jokes aside, Bitcoin has become the medium of choice for online gamblers because … well, honestly, it’s hard to say why Bitcoin is so popular with online gamblers.
Is It Illegal to Use Bitcoin for Gambling in the United States?
That’s a tricky question, because gambling using any kind of currency from the U.S. is mired in multiple legal areas–state laws and federal laws. I can say with confidence that no federal law explicitly forbids Bitcoin gambling per se.
It’s illegal to take sports bets over the internet because of the Wire Act, for example. It’s illegal to transfer money or facilitate such transfers for the purposes of illegal gambling–because of the Unlawful Internet Gambling Enforcement Act (UIGEA). You could theoretically use Bitcoin for either purpose and run afoul of the law.
That doesn’t mean that Bitcoin gambling is illegal throughout the U.S., though.
Bitcoin is built on blockchain technology. What we as users need to know about blockchain is that it is the slowest database technology ever designed.
Seriously.
You can run an SQL query on this blog that completes in a fraction of a second. You can conduct a Bitcoin transaction that completes sometime in the next 12 hours.
Bitcoin solves some problems for people who need to move money around the world. If you wait for bank transfers to complete, you might be waiting for several days.
Compared to that, sure, Bitcoin transactions are fast.
And if you don’t have a bank account, you can create your own Bitcoin wallet and receive payment from anyone with their own Bitcoin wallet anywhere in the world. Cashing out of Bitcoin or any other cryptocurrency requires that someone, somewhere, have access to a banking system.
Bitcoin Is Not Exactly Legal Tender in the United States
This is a critical point for many people doing business in Bitcoin. Although one U.S. court has ruled that Bitcoin is money, the general perception among legal experts is that Bitcoin is not yet legal tender in the United States.
You cannot pay your taxes with Bitcoin, for example.
That doesn’t mean the government doesn’t want to tax your earnings in Bitcoin. Quite the contrary. They won’t allow you to pay your taxes in pork bellies, but they will demand a cut of your profits from trading in pork bellies.
By that measure, Bitcoin is more of an electronic commodity that can be traded on various exchanges.
And people buy and sell Bitcoin all day long.
Unfortunately, several proposals to create Exchange Traded Funds (ETFs) for Bitcoin have been rejected by the US’ Securities and Exchange Commission (the S.E.C.). ETFs are popular with stock investors because they follow market indexes and usually return stable profits even in bad economic times. ETFs also have the lowest fee structures because they are run by computers with minimal human supervision.
For now, Bitcoin owners can buy and sell their electronic wealth on the various exchanges or store it in wallets, but they cannot use Bitcoin as legal tender in the United States. If a business owner is willing to accept your Bitcoin as payment for goods and services, that’s their decision. They cannot deposit that Bitcoin into their bank accounts.
American Gambling Laws Are Written with Legal Tender In Mind
Our gambling laws were written years ago–before electronic alternatives to traditional money became popular. The “word of the law” never took the potential value of things like Bitcoin into consideration. This oversight makes it unlikely that any American citizen will ever be prosecuted for using Bitcoin to cover wagers at online casinos. In the eyes of the law, Bitcoin is not exactly legal tender, so it is more like “play money”.
But don’t convert your savings account into Bitcoin just yet. Other electronic commodities have brought down the hammer in a few court cases.
For example, buying loot boxes in video games has been deemed a form of gambling. The loot boxes contained random prizes and players never really knew what they were buying. Courts in both the United States and Europe have decided that video games should not be selling loot boxes to players.
Should cryptocurrencies like Bitcoin be treated the same as loot boxes?
Of course, gamblers would oppose such thinking because they want to keep playing.
For now, the main difference between using Bitcoin to gamble and buying loot boxes in video games is that you’re not buying the Bitcoin directly from the online casinos where you gamble. They expect you to deposit your Bitcoin into your casino accounts. Hence, you’re buying the Bitcoin elsewhere, and they have no interest in those transactions.
You don’t even have to pay for Bitcoin, technically. You could be given Bitcoin by anyone for any reason, including running your own Bitcoin mining server (although it’s very difficult to earn money by mining Bitcoin).
Online Gambling Laws Are Enforced against the Casinos, Not the Players
So far, few American gamblers have been arrested and charged with gambling online. If you decide to set up your own online casino, you won’t be able to legally operate one from an American web hosting company. You have to lease your software and resources from a company that can legally provide those services. You also need a license to run a gaming company.
You’re not going to get one in the United States.
A few states do authorize online gambling for their own resident citizens. To use an online casino in New Jersey, for example, you must be physically located inside the New Jersey state lines at the time you gamble online for money. Even if you create an account with a licensed online New Jersey casino and deposit money into that account, you cannot play for money while you are outside New Jersey.
So, while you’re not likely to be arrested for gambling online, you may find it hard to place your bets. If you live in the United States and you try to join a casino like Slots.Com or Bodog, you’ll be politely turned away. They don’t accept US players. By avoiding US players these online casinos don’t have to worry about enforcement actions in the United States.
So Who Are These Guys Running US-Friendly Online Casinos?
The online casinos that cater to U.S. players fall into 2 groups:
- The licensed gambling operations that build websites according to strict state licensing rules. If you live in a state that allows online gambling, you can find at least 1-2 online casinos that comply with your state laws. These sites are managed by reputable corporations that are held accountable to state laws.
- The second group of online casinos operates in a grey area. We sort of know who these people are, but the human owners keep their identities in the shadows. In other words, they set up corporations in foreign countries (and may not, for all we know, be U.S. citizens), and they operate according to the laws of those countries.
The Bitcoin-accepting casinos operate outside United States jurisdiction, and whether they can be shut down by American law enforcement depends on what they’re doing and how determined US authorities are to get to them. There have been a few cases where aggressive law enforcement actions have been taken against overseas companies.
For example, one group operating out of Costa Rica advised its gambling customers to buy debit cards from a popular online retailer and then to use those debit cards to make deposits. This was deemed “money laundering,” and things did not turn out well for everyone involved.
You May Hate Bitcoin, but We’re All Stuck with It
Bitcoin has had its problems. Several of the major exchanges have failed over the years, costing Bitcoin owners hundreds of millions of dollars in losses. And there is a theory circulating on the Internet that Bitcoin prices are, to a certain extent, being influenced by “whales” who supposedly own so much Bitcoin that they can drive the prices up and down.
The Bitcoin mining process has become so expensive that only a few companies still support it. Mining is the process by which new transactions are encoded into the publicly distributed blockchain. Until 50%+1 of the miners agree on the hashing values used to add new transactions to the blockchain, those Bitcoin transactions are not considered valid. As more Bitcoin blocks are added to the chain, it takes longer to add more blocks to the chain.
Several proposals to “fix” Bitcoin’s technology have either failed or led to the creation of new cryptocurrencies, sometimes generating competitive wealth for people who owned Bitcoin when the new blockchains were “forked” off to create the new cryptocurrencies. The politics of the Bitcoin mining community contributes to the cryptocurrency’s instability and price volatility.
Even so, because the online casinos that accept US players are trying to avoid explicitly breaking any US laws, they will probably continue to rely on Bitcoin as a medium of exchange. The value of your Bitcoin may rise and fall against mainstream currencies like the Dollar, Euro, and Yen, but until you trade out of Bitcoin you haven’t made or lost any money.
Of course, gambling with Bitcoin means you may lose some or all of your Bitcoin on the games you play. But you’re paying for entertainment when you gamble.
That’s the risk you agreed to accept when you signed up.
Conclusion
So, getting back to the original question: is it legal to gamble with Bitcoin in the United States?
Well, it’s not yet been determined to be illegal, so that is something.
As a player, you probably don’t have to worry about whether someone is coming to take you to jail.
But if you win money from gambling. you’re expected to report your winnings and pay taxes on them.
You could be prosecuted for tax evasion.
That’s an avoidable risk.